Gas and electricity prices: more rises to come? Predictions…

The last twelve months have been an annus horribilis when it comes to energy prices. The first big jumps came in January then there was a huge tranche of in some cases 30% plus rises around August.

As I explain in the Compare Gas & Electricity guide one of the major ways to prevent your bill for much of this year has been to cap, which means fix your rate to guard against future rises. The problem comes when you pay a lot more to cap than you would sticking with the standard cheap tariff. The only true way to get it right every time is if you KNOW what’s going to happen to energy prices.

Sadly, short of a crystal ball, that knowledge doesn’t exist; yet I’ve been speaking to a few people in the industry (special thanks to Mark Todd at Energyhelpline), and wanted to write a brief note on what the expected outcome is. Bear in mind though, even this is just a back of the envelope type of thing, and could be wildly inaccurate.

First you need to understand why prices are rising.

Of course utility companies like raising prices and increasing profits, but the underlying cause is the rise in the cost of wholesale gas – the price the energy companies buy it for.

The important measure here isn’t the current price, it’s the ‘winter price’ as that’s what’s generally referred to, and people sell ahead.

Energy cost last December: Roughly 50p per therm

Winter 08 peak cost: Roughly £1.10 a therm a month or two ago

Winter 08 current cost: Roughly £1.00 a therm

This means the price rises we’ve had so far aren’t enough!

As you can see the rise has been huge, and even our painful 50%ish rise in consumer prices is actually smaller than the doubling of the wholesale rate. Though some of this rise was factored in to earlier consumer price rises.

As the energy companies have said they want to “maintain margins” this means it’s possible we’ve more price rises to come so consumer prices can catch up.

3 in 5 CHANCE OF UP TO 20% GAS & ELECTRICITY RISE NEXT JANUARY.

Unless there’s a drop in the price of a gas therm, i.e. it goes back to 80p, then we are likely to see our energy bills increase in January. It’s unlikely to be sooner as we’ve just had a price round, and they don’t put prices up pre-Christmas for fear of being called a Scrooge.

Of course political pressure could be brought to bear, or even the threat of introducing a windfall tax, which may make the utility companies a little more fearful of further price hikes. In which case they’ll analyse whether it’s more cost effective to raise the prices and pay tax, or just take the hit themselves and not raise prices.

You may be wondering why I’m focusing on Gas prices and not electricity. The reason’s simple, the electricity price is more complex and depends on the price of oil (which has also gone up) and the price of gas, so the wholesale gas price tends to be the lead indicator here.

What about further in the future?

Beyond next January we really are in uncertain territory. Currently the market predictions are for prices to dip slightly for winter 09, but only by a few percentage points, nothing that will change the landscape too dramatically.

Yet this could change one way or another. There’s been no real reason for the wholesale prices to be so high, no physical change, it’s just market conditions, and because of this some think they’ll drop again, while others simply say the days of cheap energy are over.

What no one seems to be predicting is yet more big hikes after next Janaury, which, if they’re right (and of course there’s no guarantee) means that paying a substantial premium for a long term cap doesn’t look to be as good value as paying a small premium for a short cap.

Have your say

This is an open discussion; anyone can post. Comments may be edited, and are only published during the working day. Please report any spam, illegal, offensive, racist, libellous posts (inc username) to fbteam@moneysavingexpert.com.

Related Articles

It’s one of those niggling frustrations. You want to buy something at the airport and you’re badgered for your boarding pass in order to purchase. Many people ask me if they need to bother, so here’s my quick video answer… Some frequently asked questions… After I originally posted this video on social media, there were a few...

So what piqued your interest most in 2017? I asked the MSE data team to let me know what my top 10 most read blogs were for the year. Now, of course, these aren’t the most read things on MSE – just the bits of my musings you most picked up on. At a vain attempt to...

We live in one of the world’s most competitive consumer economies. Companies spend billions of pounds on advertising, marketing and teaching their staff to sell. Yet consumers don’t get buyers’ training. Financial education is crucial to address this misbalance. I was delighted to be part of the campaign that put financial education on the English national curriculum...

It’s one of those niggling frustrations. You want to buy something at the airport and you’re badgered for your boarding pass in order to purchase. Many people ask me if they need to bother, so here’s my quick video answer… Some frequently asked questions… After I originally posted this video on social media, there were a few...

Martin's Twitter Feed

Blog Topics

Archives

How this site works

We think it's important you understand the strengths and limitations of the site. We're a journalistic website and aim to provide the best MoneySaving guides, tips, tools and techniques, but can't guarantee to be perfect, so do note you use the information at your own risk and we can't accept liability if things go wrong.

This info does not constitute financial advice, always do your own research on top to ensure it's right for your specific circumstances and remember we focus on rates not service.

We don't as a general policy investigate the solvency of companies mentioned (how likely they are to go bust), but there is a risk any company can struggle and it's rarely made public until it's too late (see the Section 75 guide for protection tips).

Do note, while we always aim to give you accurate product info at the point of publication, unfortunately price and terms of products and deals can always be changed by the provider afterwards, so double check first.

We often link to other websites, but we can't be responsible for their content.

Always remember anyone can post on the MSE forums, so it can be very different from our opinion.

MoneySavingExpert.com is part of the MoneySupermarket Group, but is entirely editorially independent. Its stance of putting consumers first is protected and enshrined in the legally-binding MSE Editorial Code.